The board of Bharti Infratel Monday said it was not possible to complete its merger with Indus Towers by the deadline of October 24, given the still-required government approvals, throwing the deal which would have created among the world’s largest telecom tower companies into disarray.
The development also puts a cloud on the hopes of Vodafone Idea, its co-parent Vodafone Group of UK and Bharti Airtel – joint owners of Indus Towers – of raising funds by divesting stake in the merged entity, say analysts. Cash-strapped Vodafone Idea, currently holding 11.15% in Indus Towers, was banking on an exit at the time of merger to raise over Rs5,500 crore to fund its future network expansion needs to compete against Airtel and Reliance Jio.
The telecom tower company’s stock closed 1.8% higher at Rs 261.80 on BSE on Monday. The announcements came after market hours.
In a release issued on Monday, the board of Bharti Airtel’s telecom unit said it has set up panel of directors to advise by Thursday on the future steps needed to be taken by the tower company to “secure” the interests of its shareholders.
“The scheme contemplated the closing by October 24, 2019 (long stop date), by which time a large number of processes and conditions precedent were required to be completed, which included but were not limited to all requisite Government approvals and filings,” Infratel said.
The merger, proposed well over a year ago to create a company with over 1,63,000 towers, had received a clearance from the Chandigarh bench of the National Company Law Tribunal (NCLT) in early June, and had been awaiting a nod from the Department of Telecommunications’ (DoT) for enhancement of foreign direct investment limit.
“The Board noted that all the requisite Government approvals have not been received till date and conditions precedent and processes not completed. It therefore concluded that it is not possible to complete the scheme by the long stop date,” the company added.
Thus, the board thus authorized a Committee of Directors to explore and evaluate all possible options to secure the best interests of the company and its shareholders under the current facts and circumstances.
“Based on the recommendations received, the Board shall take a suitable decision on the way forward,” it added.
As per the merger terms, Bharti Airtel and Vodafone Plc – which currently own 42% each in Indus Towers – were expected to hold 37.2% and 29.4%, respectively, in the merged entity.
KKR and Canada Pension Plan Investment Board were expected own a combined 6%, stemming from their stake of over 10% in Bharti Infratel.
US-based asset management firm Providence Equity Partners was also likely to join Vodafone Idea in selling stakes in Indus Towers for roughly Rs 2,000 crore.
Separately, Bharti Infratel chief financial officer S Balasubramanian has resigned from Bharti Infratel, which effective December 5, 2019.
Monday, Bharti Infratel reported a 61% jump in net profit in the fiscal second quarter, helped mainly by a change in accounting standard which lowered operating costs, and a higher net finance income.
India’s sole listed telecom tower company’s consolidated net profit for the July-September period came in at Rs 964 crore. Quarterly consolidated revenue, though, fell 1% on-year to Rs 3,638 crore.
The company’s consolidated earnings before interest, tax, depreciation & amortisation (Ebitda) rose 25% on-year to Rs1,885 crore, which was lower than the Rs 1,953 crore in the June quarter. Operating free cash flow rose 8% on-year to Rs1,080 crore, which was lower than the Rs 1,207 crore it clocked in the previous quarter.
Without the adoption Ind AS 116 accounting standard, the company’s revenue would be down 3% on year, Ebitda would be lower by 1% and operating free cash flows would have fallen 1% as well, the company said in the statement.
Essentially, Ind-AS 116 enables companies to recognise leases (towers in this case) as assets in the balance sheet from April 1, 2019, and as such, the relevant lease rentals do not get reflected in the network opex – thus pushing up earnings before interest, tax, depreciation & amortization (Ebitda) – but as an element of depreciation cost.
So, the company’s consolidated expenses for the September quarter fell 19% on-year to Rs 1,752.7 crore. The largest components were power & fuel, which fell 3%, followed by repairs & maintenance expenses that fell 9%, respectively. There was no rent paid in the just ended quarter, against a rental expense of Rs3,168 crore a year back.
But depreciation and amortization costs rose 32% on year to Rs786.5 crore. But quarterly net finance income rose to Rs1,251 crore compared with a net finance cost of Rs442 crore a year back, to support net profit.
“Bharti Infratel has continued on the positive trend in quarterly net additions on both towers and co-locations during the quarter ended September 30, 2019,” Bharti Infratel chairman Akhil Gupta, said in a statement.
Co-locations are points where a tower company deploys mobile telecom antennae of multiple carriers on a single structure.
“We continue to believe that there is strong growth potential in telecom passive infrastructure in the country as telecom networks keep pace with the continuing exponential data consumption growth. Both Bharti Infratel and Indus towers are well poised with their industry-leading scale and strong financial position to partner with mobile operators as they look to intensify their networks,” Gupta added.
Indus Towers, a telecom joint venture between Bharti Airtel and Vodafone Idea, is currently merging with Bharti Infratel, which is a tower unit of telecom major Bharti Airtel.
Bharti Infratel reported 159 net on-quarter additions in co-locations, taking the total count to 1,73,406 as of September-end. The company though lost a whopping 1,106 co-locations on year.
The company’s tower base rose 1,298 on-year and 789 sequentially to 93,421 in the fiscal second quarter.
